Sen. Smith files bill in North Carolina Senate to repeal service sales tax

A new bill filed by State Sen. Kandie D. Smith aims to remove most services from North Carolina’s sales and use tax base, according to the North Carolina State Senate.

The bill, filed as SB 877 on April 28 during the 2025 regular session, was formally listed with the short title: ‘Repeal Service Tax.’

The following is our breakdown, based on the actual bill text, and may include interpretation to clarify its provisions.

In essence, this bill repeals North Carolina’s sales and use tax on most services by removing service contracts and repair, maintenance and installation services from the taxable base and striking related provisions throughout the tax code. It eliminates service-related sourcing, bundled transaction, marketplace facilitator, use tax, refund and exemption rules, including special service exemptions for farmers, wildlife managers, nonprofits and interstate carriers, and deletes references to “service contract facilitators.” The bill also updates definitions so that “items,” “gross sales,” “remote sales” and similar terms no longer cover services. The act takes effect July 1, 2026, for services provided on or after that date.

Smith proposed another 72 bills during the 2025 regular session.

Bills in North Carolina follow a multi-step process before becoming law. A lawmaker starts by filing a bill, which is assigned to a committee for review. The bill must be read three times in each chamber. If one chamber changes the bill after the other passes it, both must agree on the final version. Once both chambers approve the same bill, it goes to the governor, who has 10 days (or 30 if the legislature is not in session) to sign, veto, or let it become law without a signature.

You can read more about the bills and other measures here.

Smith graduated from Charleston Southern University in 1991 with a BA.

Smith, a Democrat, was elected to the North Carolina State Senate in 2023 to represent the state’s 5th Senate district, replacing previous state senator Donald Davis.